UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED: MARCH 31, 1999
COMMISSION FILE NUMBER: 33-29985-NY
THE FREIGHT CONNECTION, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2994672
- ------------------------------- -------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12900 DUPONT CIRCLE, TAMPA, FLORIDA 33626
--------------------------------------------------------------
(Address, including zip code, of principal executive offices)
(813) 854-1500
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filings for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 12, 1999, the number of the Company's shares of par value
$.001 common stock outstanding was 4,825,630.
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
MARCH 31, 1999
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Balance Sheets...............................................................3
Statements of Operation......................................................4
Statements of Stockholders' Equity...........................................5
Statements of Cash Flow......................................................6
Notes to Financial Statements................................................7
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................8
PART II - OTHER INFORMATION.................................................12
SIGNATURES..................................................................13
2
<PAGE>
THE FREIGHT CONNECTION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 771,342 $ 515,125
Accounts receivable - trade
net of allowance for uncollectible accounts
of $118,149 and $115,474, respectively 4,706,723 4,248,718
Accounts receivable - income taxes 47,508 50,005
Deferred tax asset 22,100 20,456
Prepaid expenses and other receivables 14,062 13,259
---------- ----------
Total current assets 5,561,735 4,847,563
---------- ----------
Property and equipment
(net of accumulated depreciation) 212,169 193,192
---------- ----------
Deposits and other assets 72,184 87,083
---------- ----------
$5,846,088 $5,127,838
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $3,505,433 $2,788,222
---------- ----------
Total current liabilities 3,505,433 2,788,222
---------- ----------
Stockholders' equity
Common stock, $.001 par value;
authorized 20,000,000 shares;
4,825,630 shares issued and outstanding 4,826 4,826
Additional paid-in capital 918,982 918,982
Retained earnings 1,416,847 1,415,808
---------- ----------
Total stockholders' equity 2,340,655 2,339,616
---------- ----------
$5,846,088 $5,127,838
========== ==========
</TABLE>
3
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF OPERATION
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
Freight income $ 7,338,326 $ 6,569,126
Freight expense 6,707,706 5,950,906
----------- -----------
Gross profit 630,620 618,220
Selling, general and
administrative expenses 613,385 480,602
Depreciation & amortization 20,248 18,349
----------- -----------
Income from operations (3,013) 119,269
Other income (expenses):
Interest income 5,052 16,316
----------- -----------
Total other income 5,052 16,316
----------- -----------
Income before income taxes $ 2,039 $ 135,585
Income tax expense 1,000 63,000
----------- -----------
Net income $ 1,039 $ 72,585
=========== ===========
Net income per common share
(Basic and Diluted) $ 0.00 $ 0.02
=========== ===========
Weighted average
shares outstanding 4,825,630 4,825,630
=========== ===========
4
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THE FREIGHT CONNECTION, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
NUMBER OF PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
---------- ------ ----------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance
December 31, 1998 (audited) 4,825,630 $4,826 $ 918,982 $1,415,808 $2,339,616
Net income for three months
ended March 31, 1999 1,039 1,039
--------- ------ ---------- ---------- ----------
Balance
March 31, 1999 (unaudited) 4,825,630 $4,826 $ 918,982 $1,416,847 $2,340,655
========= ====== ========== ========== ==========
</TABLE>
5
<PAGE>
THE FREIGHT CONNECTION INC.
STATEMENTS OF CASH FLOW
THREE MONTHS THREE MONTHS
ENDED MARCH ENDED MARCH
31,1999 31, 1998
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income $ 1,039 $ 72,585
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 20,248 18,349
Deferred tax asset (1,644) 8,000
Changes in assets and liabilities:
Accounts receivable (458,005) 33,820
Accounts receivable - income taxes 2,497 --
Prepaid expenses and other receivables (803) (24,756)
Deposits and other assets 14,899 (423)
Accounts payable and accrued expenses 717,211 84,401
Income taxes payable -- (68,000)
----------- -----------
Total adjustments 294,403 51,391
----------- -----------
Net cash provided by operations 295,442 123,976
----------- -----------
Net cash used in investing activities:
Purchase of equipment (39,225) (13,662)
----------- -----------
Net increase in cash 256,217 110,314
Cash and cash equivalents
beginning of period 515,125 1,285,929
----------- -----------
Cash and cash equivalents,
end of period $ 771,342 $ 1,396,243
=========== ===========
Supplemental disclosure:
Cash paid for interest $ 0 $ 0
=========== ===========
6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of March 31, 1999, the statements of operation for the
three months ended March 31, 1999 and 1998, the statements of stockholders'
equity as of March 31, 1999, and the statements of cash flows for the three
months ended March 31, 1999, and 1998, have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at March 31, 1999, and for all periods
presented, have been made.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto as of
December 31, 1998.
NOTE 2: NET INCOME PER SHARE
Net income per share is computed by dividing net income by the average number of
common shares outstanding, increased by common stock equivalents determined
using the treasury stock method.
NOTE 3: COMMITMENTS
On September 1, 1998, the Company renewed a $2,000,000 revolving line of credit
with a commercial bank. The line of credit has a one year term and is renewable
upon expiration. The Company did not have any outstanding debt on this line at
March 31, 1999.
7
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
MARCH 31, 1999
PART I - FINANCIAL INFORMATION
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
--------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The following discussion and analysis should be read in conjunction with the
Financial Statements appearing elsewhere in this Report. It includes an analysis
of the three months ended March 31, 1999, and 1998, respectively.
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this report constitute "forward-looking statements" as
defined in the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended. These forward-looking statements rely on a number of assumptions
concerning future events, and are subject to a number of risks and uncertainties
and other factors, many of which are outside the control of the Company, that
could cause actual results to differ materially from such statements.
Readers are cautioned not to put undue reliance on such forward-looking
statements, each of which speaks only as of the date hereof. Factors and
uncertainties that could affect the outcome of such forward-looking statements
include, among others, market and industry conditions, increased competition,
changes in governmental regulations, general economic conditions, pricing
pressures, and the Company's ability to continue its growth and expand
successfully into new markets and services. The Company disclaims any intention
or obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $2,056,302 at March 31, 1999, compared to
working capital of $2,059,341 at December 31, 1998, and $1,976,165 at March 31,
1998. The Company used working capital in 1998 to open several offices, which
are expected to contribute to working capital in 1999. The Company intends to
use this working capital to open additional offices as it deems necessary.
The Company's cash position at March 31, 1999, was $771,342 compared to $515,125
at December 31, 1998, and $1,396,243 at March 31, 1998. At December 31, 1998,
the cash balance was impacted by slower collections of customer receivables.
Many of the Company's new customers have specific documentation requirements,
which must be met in order for them to remit payment. The Company had difficulty
collecting this paperwork from its carrier vendors, which slowed the payment
process. Procedures have since been established to collect this
8
<PAGE>
documentation on a more timely basis. During the quarter ended March 31, 1999,
the Company was in the process of instituting these procedures and although
there was some improvement and cash increased from December 31, 1998, the
results are expected to be seen more clearly in the second quarter of 1999.
The accounts receivable balance at March 31, 1999, was $4,706,723 compared to
$4,248,718 at December 31, 1998, an increase of 10.8%. The accounts payable
balance was $3,505,433 at March 31, 1999, a rise of 25.7% from $2,788,222 at
December 31, 1998. The Company's business increased significantly during March
1999, which accounted for the rise in the accounts receivable and accounts
payable balances. The collection efforts made during the first quarter of 1999,
however, minimized the growth in the accounts receivable balance. The increase
in the accounts payable balance is primarily due to the growth of the highway
brokerage division. The vendors for this division typically require payment in
30 days versus the 7-14 days required by the rails.
Stockholders' equity was $2,340,655 at March 31, 1999, compared to $2,339,616 at
December 31, 1998. The increase is due to the net income generated by the
Company during the first quarter of 1999.
The Company had net cash provided by operations of $295,442 for the three months
ended March 31, 1999, compared to net cash provided by operations of $123,976
for the comparable period in 1998. The cash provided from operations for the
period ended March 31, 1999, was primarily due to the large increase in the
accounts payable balance compared to the accounts receivable balance as
explained above. Cash provided by operations for the period ended March 31,
1998, was primarily due to the net income generated by the Company combined with
increased customer collections.
The Company continues to purchase fixed assets as it deems necessary. During the
quarter ended March 31, 1999, the Company purchased fixed assets in the amount
of $39,225 compared to $13,662 in the prior year. The 1999 purchases included an
imaging unit to assist the Company in the electronic storage of documents.
In compliance with provisions in the Company's contracts with certain railroads,
the Company has obtained an unsecured surety bond in the amount of $150,000. In
addition, the Federal Highway Administration requires the Company to maintain a
surety bond in the amount of $10,000, which is secured by a certificate of
deposit. In March 1999, the Company obtained an unsecured surety bond in the
amount of $500,000 as a requirement of one of its major customers.
On September 1, 1998, the Company renewed its revolving line of credit with
Republic Bank, St. Petersburg, Florida in the amount of $2,000,000. This line is
secured by the Company's accounts receivable. The Company intends to use the
line, as necessary, to provide cash required by the Company's acceptance of new
business and for the possible opening of new sales offices. The Company does not
have any outstanding bank debt as of the date of this Report, nor did it have
any bank debt at March 31, 1999.
9
<PAGE>
At March 31, 1999, the Company did not have any capital lease obligations nor
did it have any long-term debt.
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 1999, were $7,338,326 compared to
$6,569,126 for the three months ended March 31, 1998, an increase of 11.7%. The
growth in revenues is primarily due to the contributions of the additional
offices opened during 1998. The Company is also developing its highway brokerage
division in order to provide viable alternatives to its customers. Revenues
generated by this division rose 67.6% for the three months ended March 31, 1999,
compared to the corresponding months in the prior year.
Gross profit for the three months ended March 31, 1999, was $630,620 or 8.6% of
revenues, compared to $618,220 or 9.4% of revenues for the comparable period in
1998. The decline in the margin for the quarter ended March 31, 1999, as
compared to the prior year is due to the mix of business generated from the new
offices. Although the industry is extremely competitive, the Company is working
to improve its margins and has managed to increase the profit margin by .5% from
the quarter ended December 31, 1998.
Selling, general and administrative "SG&A" expenses for the three months ended
March 31, 1999, and 1998, were 8.4% and 7.3% of revenues, respectively. The
increased SG&A percentage for the quarter ended March 31, 1999, was primarily
due to the new offices not being able to generate the volume necessary to absorb
their overhead costs for the first two months of the quarter. The Company merged
its two Chicago offices in February 1999 to reduce overhead and during March
1999, each of the remaining new offices was able to cover their overhead costs.
Management expects that these offices will continue to cover their costs into
the second quarter and that this, in combination with achieving administrative
efficiencies, will lower the SG&A as a percent of revenue.
Pretax income was $2,039 for the quarter ended March 31, 1999, compared to
pretax income of $135,585 for the quarter ended March 31, 1998. Although the
Company's revenues grew compared to the prior year, the reduction in margins and
the increase in SG&A resulted in less profit for the period.
Net income was $1,039 or $.00 per share for the three months ended March
31,1999, as compared to $72,585 or $.02 per share for the three months ended
March 31, 1998. Earnings per share are based on 4,825,630 weighted average
shares outstanding. The Company is working to better manage its SG&A and to
continue to increase its revenues and margins.
The Company will continue to market its services and promote its ISO 9002
registration. In addition, it will strive to open sales offices and obtain sales
representation in the major geographic areas of North America.
10
<PAGE>
YEAR 2000 READINESS
The Year 2000 computer issue creates certain risks for the Company. If internal
systems do not correctly recognize and process date information beyond the year
1999, the Company's operations could be adversely impacted as the result of
system failures.
In 1998, the Company implemented a plan for addressing the Year 2000 issues and
has named a Year 2000 Coordinator. The plan involves the testing of (i)
information technology ("IT"), which includes computer and network hardware,
operating systems, third-party and internally developed software, files and
databases, end-use extracts and electronic interfaces, and (ii) external
dependencies, which includes relationships with suppliers and customers.
As of the date of this Report, the area of IT has been tested to ensure Year
2000 compliance and the Company is implementing corrective actions for systems
that were determined to be non-compliant. This process is substantially complete
and IT is expected to be fully compliant and tested by mid-1999. Where
appropriate, the Company is developing a contingency plan to be in effect by
mid-1999. The Company is currently working with suppliers of products and
services to determine and monitor their level of compliance and compliance
testing. Year 2000 readiness of significant customers is also being assessed.
The Company's evaluation of Year 2000 compliance as it relates to the Company's
external dependencies is expected to be complete by mid-1999.
The Company is using internal resources in order to meet the targeted completion
dates. The costs to ensure that the Company is Year 2000 compliant are expected
to fall within budget and are not expected to have a material impact on the
Company.
11
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
MARCH 31, 1999
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
None
Item 2 - CHANGES IN SECURITIES
None
Item 3 - DEFAULTS UPON SENIOR SECURITIES
None
Item 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
Item 5 - OTHER INFORMATION
None
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
a)There are no exhibits to be filed.
b)There were no reports filed on Form 8-K during the quarter ended
March 31, 1999.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FREIGHT CONNECTION, INC.
-----------------------------
Registrant
Date: MAY 12, 1999 /s/ RICHARD E. GAETZ
------------------- -----------------------------------------------
Richard E. Gaetz, Chief Executive Officer
Date: MAY 12, 1999 /s/ GEOFF DUNCAN
------------------- ------------------------------------------------
Geoff Duncan, President
Date: MAY 12, 1999 /s/ MILISSA SIBSON
------------------- ------------------------------------------------
Milissa Sibson, Vice President - Finance, Secretary
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 771,342
<SECURITIES> 0
<RECEIVABLES> 4,706,723
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,561,735
<PP&E> 449,966
<DEPRECIATION> 237,797
<TOTAL-ASSETS> 5,846,088
<CURRENT-LIABILITIES> 3,505,433
<BONDS> 0
0
0
<COMMON> 4,826
<OTHER-SE> 2,335,829
<TOTAL-LIABILITY-AND-EQUITY> 5,846,088
<SALES> 7,338,326
<TOTAL-REVENUES> 7,338,326
<CGS> 6,707,706
<TOTAL-COSTS> 6,707,706
<OTHER-EXPENSES> 633,633
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,039
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 1,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,039
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
